Is the FTSE100 heading for a massive fall?

The stock market in London has soared over the summer. Since its low of 5707.60 in February, the FTSE100 has marched forward to levels last seen in April 2015. That’s way before the Brexit campaign even started.

The index lost 15% of its value in just 5 months following its high last April, falling to 6042 by this time last year. Just 5 months later.

So what’s going to happen now? Is the stock market going to crash?

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Decision Time

The big question is whether history will repeat itself. Are we going to see a similar story unfold to that in 2015, 2007 or before that in 2000?

ftse100-graph

Are we going to see the FTSE100 fall like it dd in 2015 and twice before?

One thing is for certain. These are uncertain times and ignoring the issue isn’t an option for anyone serious about protecting and growing their wealth.

You’ve basically got three options open to you right now.

Decide that Prices are Going to Rise Further and Increase Your Exposure

Our most recent Market Outlook report explained that there have been some pretty healthy economic numbers released since the UK’s decision to exit the European Union. Manufacturing, Service and Retail sectors have all reported strong results in the past month.

Interest rates in the UK are likely to stay low for years as the government delivers on its promise to prop up markets for as long as required. Income-seekers have been chasing any kind of sensible return since the financial crisis stripped interest rates away almost to nothing. Savers bothered to get the best return on their money have therefore switched into equities – pushing asset prices up.

philip hammond

Philip Hammond has promised to do what it takes to shore up growth

The latest cut in interest rates plus further monetary stimulus only underpins the argument for share buying. Also, the weak pound means companies in the FTSE that earn a high proportion of their profits overseas still look a decent bet.

Wait and See, Holding Your Position in the Meantime

This is the “do nothing” option.

You’d be wrong if you think that all analysts suddenly came to agreement on the country’s economic outlook following the referendum. They didn’t.

Fund managers still hold a whole range of conflicting and inconsistent views about the future.It’s therefore difficult to judge the real impact of Brexit, and it’s certainly too early to gauge the full economic impact of the change.

Even individual organisations are updating their forecasts with frustrating regularity. Credit ratings agency Moody’s has just revised its forecasts for the UK GDP downwards to 1.5 per cent in this year and 1.2 per cent in 2017. Just two months ago it had estimated the UK economy to grow 1.8 per cent in 2016, and 2.1 per cent next year.

moody's growth prediction

Credit rating agency Moody's predicts modest growth in UK GDP this year and next

There’s a clear argument for waiting to see how the economy shapes up over the coming weeks and months.

Take Your Profit and Reduce Your Holding

Thesis Asset Management is one firm that holds a negative outlook. They’ve already made a decision to reduce exposure to UK equities. They believe that uncertainty will persist in the UK for some time and, as a result, have moderated confidence in the market.

We think Europe is a value trap. Yes the European banks are cheap, but they are cheap for a reason - David Coombs, Head of Multi-Asset, Rathbones

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Ryan Paterson, research manager at Thesis, commented: “With equities currently at the upper end of their trading range and valuations generally high, now was a good time to trim back.

“The hangover from the referendum is yet to be felt, reduced business investment and likely slower pace of hiring is still to come."

Making a decision is Tough

It’s not easy to make this call. The issues are complex and wide-ranging. The decision is not just whether you should increase or decrease your exposure to the FTSE100. There’s also a need to consider by how much your exposure should be adjusted and where you should invest your money instead.

Is property a good opportunity right now? What about corporate bonds, or smaller cap UK equities? Are they better?

housing market slowdown

Many UK residential property funds have carried out fair price revaluations since Brexit and some have even suspended trading

Our market analysts continue to monitor UK and global economic developments. They spend their entire working day keeping abreast of the constant flow of forecasts and surveys of consumer confidence and business sentiment. It’s no mean feat. And it’s a task that must be near impossible for any single investor to deliver.

This constant research has enabled us to develop an investment strategy - to date – has produced some very rewarding results for our clients.

We have maintained a cautious and balanced approach to our pension investment portfolios and were in the right position to weather the immediate Brexit vote shock and participate in the subsequent market recovery.

Our Portfolio Management Service is there to help you make the best investment decisions today, tomorrow; this year and next. You don’t need to struggle these issues on your own. You don’t need to risk your future financial security by not being fully informed of all your options.

Are you concerned that the FTSE100 is about to fall? Have you already reduced your exposure to this group of equities, or are you planning to keep calm and carry on? Let me know in the comments section below.

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About the Author

By Nigel Reeves: My mission is to provide the quality, honest & jargon-free pension advice that people need to secure the retirement they deserve. At home, I'm a family man and an active supporter of grassroots sports!

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